The Three Question Fact Find (Part Two)


Part 2 of 3 (For Families)

Continuing where we left off the other day.  The second question for the family market starts to focus in on your hopes and dreams for the future while still living your best life now.  Before we go any further though you might want to review where we came from and read the first post in this series.  Question One – Do you have any debt and watch the video on the same topic here.  Da L-Dawg Show – Episode 5 – Do you have any debt?

Now, let’s move on.

Question Two – Do you have a plan to sustainably protect and grow your assets?

I believe it was Charles Schwab who said that the only thing that matters to investors is yield.  While yield (or percentage growth) is important the key concept in my question for families isn’t how fast we grow your assets, it’s how we sustain that growth over the long haul through market cycles and the overall eb and flow of life.  Growing assets is easy, protecting them from market volatility and personal setbacks takes discipline, planning and a little grace.

Just about anyone can help you save for retirement.  Banks, Credit Unions and Investment Advisors can all provide you with investment vehicles designed to help you grow your assets but a financial plan is more that just an investment plan and making a mad rush to beat the RRSP income tax deadline every February isn’t sustainable.  A good financial plan answers two additional questions; “How much is enough?” and “What happens if I die too soon, live too long or my plans get interrupted?”

Answering the how much question is the easy part.  By looking at your current lifestyle, discussing your goals, and taking into consideration your life expectancy we can make a reasonable assessment of how much money you’re going to need, when, and for how long.  At that point it’s just a matter of reverse engineering where you are now, versus where you need to get to and determining how much money to set aside, for how long and at what yield.

Presto!  You now have an investment plan.  But that is still not a complete financial plan.

The tricky part comes in answering the second question.  If you die too soon your family could be put in a difficult situation, forced to make drastic changes just to survive.  The loss of your income due to death, disability or other economic pressures could present challenges keeping debts paid, funding children’s education or just keeping the lights turned on.  Not to mention the very real possibility of our medical system figuring out ways to keep you alive longer than your money can reasonably last.  This is were old school investment planning, the how much and now long discussion, meets insurance planning and becomes a full-fledged financial plan.  The effective use of life, disability and critical illness insurance, along with certain principle protected investment funds are an often-overlooked part of the planning process no matter your stage of life.

So, do you have a plan to sustainably protect and grow your assets?

Stay tuned for question three – Where do you want your money to go after you die?

For more information or help with your financial plan contact:  lauren.sheil@f55f.com or simply leave a comment below.

Quick Tip #19 – The Value of Planning Ahead


When you own your own business, you want to consider the various ways to cover the risks your business faces as well as ways to protect your employees. A financial security advisor can help you plan ahead to protect your business. For example, using insurance can help:

  • Fund a future capital gains tax on the shares of the corporation at death of the owner
  • Fund a buy-sell agreement at the death of one of the co-owners of the business
  • Provide key person coverage
  • Provide long-term debt retirement coverage in the event of the death of an owner or key person

Quick Tip #7 – The Value of an Advisor


As a financial security advisor, I work with you to review your financial needs and goals and to solve problems before they even happen. It’s not always about providing a solution, but it is about working together, as partners, to increase potential gains and reduce concerns. Your financial security advisor is your partner for life.

Protecting what you work for


Safeguarding your family’s lifestyle with insurance

When you first started working, you may not have given insurance a second thought. However, as you enter your peak earning years, you have a lot more to protect. It’s likely that you and your family depend on your salary for the lifestyle you enjoy – and life, critical illness and disability insurance can help protect that lifestyle if you are unable to work.

The number one cause of bankruptcy in Canada is an unexpected and uninsured illness or injury. That is why I placed “Regulate Risk” as number 2 in my Six Steps to Financial Freedom. If you haven’t already subscribed to this page and received your free copy of my e-book of the same name you can request it here.

There is a lot of confusion about the various types of personal risk insurance on the market so here is a quick primer of the three most common types of insurance and how they work. Contact us any time for more information or to schedule a FREE, no obligation consultation.

Life insurance

Life insurance is important for everyone, especially if you own a home, have children or are responsible for other family members. How much you need depends on factors such as you debts (e.g., your mortgage), education goals for your children and other income needs. Here are two of the most common types of life insurance:

Permanent life insurance (also known as whole life and universal life) provides protection for life, as long as your premiums are paid. In some cases, you can accumulate a tax-advantaged investment or cash value that may increase the amount you leave to your beneficiary.

Term life insurance provides protection at a guaranteed rate for a specific period of time, typically 10 or 20 years or to age 65. The policy is renewable at the end of the term, though the rate will be higher. This type of insurance is often used to cover a financial obligation that will disappear in time, such as a mortgage.

Critical illness insurance

Even though survival of heart attacks, strokes, cancer and other critical illnesses is increasing, recovering from such setbacks often requires weeks or months away from work. Extra costs, such as alternative treatments and accessibility modifications to your home, may not be covered by your provincial health plan.

Critical illness insurance provides a one-time cash benefit if you’re diagnosed with one of the conditions defined in your contract. The benefit can help support the day-to-day needs of you and your family while you take the time to access treatment get well and return to work.

Disability insurance

Relatively common conditions such as depression or osteoarthritis may prevent you from working for a period of time. So can a serious car crash or back injury.

Disability insurance provides monthly benefits to help replace your salary or wages after an accident or illness. This type of protection is especially important if you job is your family’s primary source of income or if you run your own business.

Do you have enough coverage?

Keep in mind that, even if you have insurance through a benefits plan at work, it may not be enough to maintain your family’s current standard of living in the event of your death, critical illness or disability. An individual policy can help top up your benefits – and stay with you if you change jobs.

Check out the insurance calculators provided on our product pages to find out how much insurance you may need and the potential costs. Contact us any time to schedule a FREE, no obligation consultation.

Regulate Risk


Six Steps to Financial Freedom, Step Two

Quick, what’s your biggest asset?

Did you say your house, your car, or if you’re lucky your investment portfolio?

Wrong, wrong and wrong again!

The fact is your biggest asset is you.

Step Two in my Six Steps to Financial Freedom is to Regulate Risk. Since your biggest asset is actually yourself and your ability to earn and income that means your biggest risk is the risk of losing that ability. Once you have taken control of your debts and before you start investing you need to make sure you protect yourself and your family from some the unthinkable (and inevitable) events.

Here are some sobering statistics.

–          The average working individual has a 1 in 3 chance of being off work due to illness or injury for more than 90 days at least once between the ages of 25 and 65.

–          The average length of disability is 2.9 years.

–          1 in 2 and 1 in 3 women will develop heart disease resulting in a prolonged absence from work.

–          1 in 2.3 men and 1 in 2.7 women will develop cancer, resulting in a prolonged absence from work.

–          80% of heart attack patients make a full recovery.

–          100% of deaths are permanent.

Regardless of what the personal opinion and compassionate position of your banker might be, the bills will keep coming. Nothing can derail your retirement plan or increase your debt faster than an unexpected illness or the premature death of a wage earner.

As a result before you start investing I strongly recommend you carry 4 types of insurance. Depending on your employment situation not all of these products are necessary for everyone and budget is always a consideration but these are the basics.

1 – Health Insurance.

healthplan

The good news is that most employers offer some form of group health plan to their employees to cover prescription drugs, dental and other incidental health care related costs. Many health insurance plans also include a small amount of Life and Disability Insurance. In most cases however the Life and Disability portion is very small and severely restricted, read the fine print and ask a licensed insurance specialist to help you interpret what it all means. There is nothing worse than surprises when it comes time to make a claim. And of course, once you leave your employer you no longer have coverage. If you work for an employer who does not offer a group plan, or you are self-employed look into getting some personal coverage, it may seem expensive at first but believe me, no one who makes a big claim for cancer treatment or restorative dental work ever says they paid too much for their insurance.

2 – Life Insurance.

coffin

Despite what you might think dying is not a get out of debt free card. Especially for the people you leave behind. The number 2 cause of bankruptcy in North America is the early death of a wage earner. If you carry debt – get life insurance! Even if you don’t carry debt or your spouse thinks they can handle it without your income you should still get at least enough insurance to cover the cost of a funeral. The average cost of a funeral in Canada is $12,000 add to that final expenses related to a prolonged illness and possible legal fees incurred in settling your affairs and the cost could easily exceed $15,000 or $20,000. It just makes good sense to make sure the last thing your loved ones remember about you it’s how much your funeral cost.

3 – Disability Insurance.

injured

Back to point one, most employers offer some form of Disability Insurance within their group health plans but read the fine print. Most group disability coverage only starts paying after you’ve already been off work for several months and stops paying after about two years. From the stats above we know that the average length of disability is closer to three years and that’s if you’re lucky enough to even qualify under the definition of disability in your plan. Many policies define disability so narrowly that even though you can’t do your job, if you can do any job at all for any amount of pay, you don’t qualify. Think about that for a minute.

A personal disability insurance plan tailored to your income and special skills, even in conjunction with a group plan, might be the difference between making your mortgage payment or being forced to sell your house and move to a cheap apartment.

Any guesses as to what’s the number one cause of bankruptcy?

4 – Critical Illness Insurance.

sick

Many critical illnesses, cancer, heart attacks etc, have a fairly quick recovery time and as you can see by the stats above, medical science has given us a pretty good chance of surviving. You could have a heart attack and be back to work, at least part-time in less than a month. You could be taking cancer treatments in the morning and going to work in the afternoon. If that’s the case you might not be off work long enough or have your hours reduced enough to qualify for disability insurance. But the economic cost could still be significant.

Disability Insurance only replaces your income it does not cover the cost of one-time expenses like home renovations to accommodate a wheel chair or expenses associated with a long hospital stay. Things like extra commute costs or the loss of income from a spouse who takes time off to be with you for example are not generally considered in a disability insurance claim. That’s where a critical illness policy becomes valuable it provides a one-time lump sum payment at the time of diagnosis to help cover initial expenses associated with the condition.

As you can see there are quite a few areas of risk associated with your ability to earn an income that need to be addressed early in your financial plan.  When bad things happen, it doesn’t take long to wipe out a retirement nest egg if you aren’t prepared with a proper amount of insurance. The exact structure of an insurance plan is different for everyone based on your budget and how exposed you are but the bottom line is this; if you have any debt, a job or are currently breathing, you are exposed to risk that a good health, disability and life insurance plan can mitigate and you should do that before you invest a dime.

Next week we’ll look at step three, Rule Retirement.

If you have any questions or would like more information on how to Regulate Risk in your life write to themeekonomicsproject@gmail.com

Six Steps to Financial Freedom


Earlier this week I had a bit of brain storm.  With RRSP season over and spring just around the corner (yes I know this winter has been BRUTAL but the bone chilling cold and mountains of snow can’t last forever), I started looking for a new product line to hone in on.  Most people in the financial planning business choose to focus on either insurance or investments and treat the other side of things as an add-on.  But after a few days toying with different ideas what I ended up settling on was not just a new product focus but a whole new way, for me at least, of looking at financial planning writ large.  This is approach isn’t about a specific product, or type of product like RRSPs or Life Insurance, it’s a whole new way of building wealth from the ground up which can be customized to apply to anyone, in any circumstance regardless of whether you are deeply in debt, just starting out or an established business owner with substantial net-worth and positive cash flow.

I call it The Six Steps to Financial Freedom and yesterday I sketched it on a yellow pad, it looks like this;

Six Steps

You can click on the image and make it bigger but most of you won’t, that’s okay…

Over the next several weeks I will focus on each aspect of this plan in order and write about them.  Starting at the bottom and moving up through the steps.  Whenever I come across an interesting article on the subject I’ll re-tweet it with the corresponding hashtag as well.  Here are the steps again with their hastags.

Step 1 – Dominate Debt (#dominatedebt)

Step 2 – Regulate Risk (#regulaterisk)

Step 3 – Rule Retirement (#ruleretirement)

Step 4 – Engineer Education (#engineereducation)

Step 4b – Steer Succession – for business owners only (#steersuccession)

Step 5 – Take Control of Taxation (#controltaxation)

Step 6 – Leave a Legacy (#leavealegacy)

It is my hope that through this process you will start to see Financial Planning in a different light and perhaps get excited about the process.  I’m here to help – for more information and to get started on your customized plan write to; themeekonomicsproject@gmail.com

 

Bank Offered Life Insurance; why that’s not really a good thing


Manos entregando una casa

So every once in a while, when speaking about the topic of Life Insurance I get this objection, or something similar.

“When I took out my mortgage the bank offered me Life Insurance too, since that’s my only debt my family will be fine.”

The fact of the matter is that under Canadian law a bank employee is actually prohibited from selling any type of insurance product, whether it be life, disability, property (such as home and auto) or casualty insurance to consumers.  What they are really selling you is not insurance for yourself but the privilege of paying premiums on behalf of the bank so that if you die (or in the case of disability insurance that they also sell, become disabled) while you still owe them money the insurance company will step in and pay off your debt.  You won’t ever see a dime of that money.   You do not actually own the policy and cannot a name beneficiary, both the owner and the beneficiary remain the bank itself.

If that’s not enough to give you pause it doesn’t end there.  There is no real underwriting on a bank owned life or disability insurance policy.  Instead they ask you about half a dozen questions and then wait until you get sick or die to do any kind of due diligence on your answers.  If you lie, forget the facts, or simply misunderstand the questions your claim could be denied right at the time when you or your loved ones are the most vulnerable.  Your family could be left holding the proverbial bag for a mortgage payment they can no longer afford.

There is also the small matter of the pay out.  Since the bank is the beneficiary and the policy is design to only pay out the balance of your mortgage it makes sense that over time, as your mortgage balance drops so too does the amount the insurance company needs to pay the bank.  With that being the case you would think that your premiums would drop as well but they don’t.  You pay a level premium for the entire time you hold the mortgage, regardless of the balance.

By contrast a true life insurance policy that you own allows you to designate any beneficiary you like, both payout and premiums remain level for the entire life of the policy and all underwriting is done prior to the policy going into force so if you have high blood pressure or forget to disclose your genetic predisposition to heart disease the insurance company will be aware of that before offering the coverage and will build the possibility into the premium you pay, resulting in far fewer instances of claims being denied.

The good news is that the bank is also legally obliged to give you the chance to opt out of their coverage.  When buying a house, as with any major purchase or life event it’s always a good idea to consult with a qualify third party financial advisor.  Independent financial advisors work for you, not the banks, and they may be able to help you identify far more than just your insurance needs.

For more information and a better explanation of the payout arrangements on bank owned life insurance check out this article from a fellow financial advisor posted a few years ago (Mortgage Insurance vs. Life Insurance) or email me at themeekonomicsproject@gmail.com

 

Could it Happen Here?


This is kind of scary!

Check out this story from Truth-Out.org – It Could Happen Here: The Confiscation Scheme Planned for US and UK Depositors

032913-1

Although I’m not sure what the Canadian Bank Act would have to say about this it is clear that in other developed countries it is possible that a bank failure, or even a liquidity crisis, could result in loses for depositors. 

In Canada we have the CDIC (Canadian Deposit Insurance Corporation), which was set up by the Federal Government to underwrite depositors funds up to $100,000 in the event of a banking failure.  But they make it very clear on their website that not all deposits are protected, especially in the event of fraud or theft.  A case could be made that most, if not all of these large-scale bank failures we’ve seen in the past few years are as a result of some form of fraud by bank managers so strictly speaking, maybe it could happen here. 

In my opinion the best thing to do would be to have an emergency fund and investment portfolio diversified over more than one bank and investment firm to ensure that no matter what happens, you don’t end up completely wiped out.

For more information click on The Meekonomist Manifesto above or write to themeekonomicsproject@gmail.com